Wednesday, November 09, 2016

Replacing, not just repealing, Obamacare

Trump has promised to repeal Obamacare. To prevent its reinstatement down the line, or its replacement with something even worse, however, he ought at the same time to introduce a new system. I made the following proposal in Fubarnomics and think it still our best alternative:

1) make it illegal for employers to offer health insurance and for insurers to offer group health policies, i.e. all policies become INDIVIDUAL. This way job loss does not mean loss of benefits/uninsured status.
2) allow the creation of federally-chartered MUTUAL LIFE/HEALTH INSURERS that will offer individual variable premium policies throughout the NATION that cover life, own occ. disability, and health insurance in a single policy, with the payoffs tied to premium payments (i.e., savings) and actual claims. So holding premiums constant, somebody healthy who dies in an accident at 45 gets a big life insurance payout while somebody disabled at 25 gets none and somebody with average health insurance claims gets a medium life insurance payout. (Simple concept, somewhat tricky actuarially but I've never, ever met a dumb actuary and I know about a dozen of them. Can't say that for any other profession.)
3) randomly assign uninsured Americans to the mutual insurers so there is no serious adverse selection.
4) going forward, mandate pre-testing in utero coverage so there is no serious adverse selection. Any mother who does not start a policy for her embryo/fetus before it is tested or born shall pay a substantial fine and the baby shall be randomly assigned to a mutual insurer.
5) policies can never be cancelled and can never lapse but will lose value over time if premium payments stop.

If these ideas do not make sense to you, you don't understand insurance or behavioral finance and you should bone up or shut up. The proposals are designed to:

A) limit uninsured individuals by breaking the tie to employment and not allowing cancellation or lapses
B) limit adverse selection through random assignment and in utero coverage
C) encourage young, healthy people to make premium payments by compensating them with more life/disability insurance
D) make elderly patients face the trade off between extending life via expensive medical treatment vs. leaving assets to their heirs
E) keep costs low through the mutual form (i.e., ownership by insureds not stockholders) & competition & creation of a large, powerful interest group (mutual insurers and their policyholders) interested in finding ways of reducing medical expenses
F) bond insurers to pay for healthcare via the life insurance tie in: they will rationally spend money to save someone's life to prevent a life insurance payout.
G) if income redistribution is desired by the electorate, it can happen through government premium payments on behalf of the poor, veterans, or other subsidized groups

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